American Benefit Corporation
August 16, 2010 Press Release - Non-Qualified Deferred Compensation American Benefit Corporation specializes in developing strategic solutions to executive benefit needs.
At American Benefit Corporation, we design, fund and manage executive non-qualified benefit plans for highly compensated corporate executives who wish to reduce current income taxes and form personal capital on a tax efficient basis. Established more than 30 years ago, we serve the unique needs of executives in numerous corporations with their personal capital formation objectives.
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American Benefit Corporation and its representatives are presently licensed to operate in particular states of jurisdiction and may operate only where licensed and, with regard to any particular product, where that product has been approved. American Benefit Corporation and/or James W. Herlihy are currently licensed to market insurance and investment products in Arizona, Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Vermont.
The insurance and/or investment product information on this site is not intended for distribution or use in any states or jurisdictions where our company, its products, or representatives are not so licensed or approved.
Securities offered through M Holdings Securities, Inc. A Registered Broker/Dealer, member FINRA/SIPC. American Benefit Corporation is independently owned and operated.
American Benefit Corporation is a member of M Financial Group. Please go to www.mfin.com/DisclosureStatement for further details regarding this relationship.
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Reduce Turnover With Corporate Match
A large east coast grocery store chain employed pharmacists in each of their stores. They were experiencing 40% turnover each year within this group and wanted a benefit plan that would increase their retention.
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Non-Qualified Deferred Compensation: An Executive Attraction and Retention Tool
As the world economy continues to improve the attraction and particularly the retention of key executive talent is going to become very competitive.
Having recently weathered the most challenging time in our economic history it is easy to understand why a CEO would be hesitant to consider the implementation of an executive benefit that will function as an executive attraction and retention tool. However, in many cases this is exactly what should be done.
The primary financial goal of younger executives is educating their children and the primary concern of other executives is restoring the investments that have been lost and having enough money to retire.
A Non-Qualified Deferred Compensation Plan can meet the corporate objective of executive attraction and retention as well as the executives' objectives to pay for college education, restore investment funds and fund for adequate retirement income.
The first component of this plan should be elective income deferral. The plan will generally allow executives to defer up to 100% of their pre-tax base and bonus compensation. This strategy will permit the executives to restore their investments on a pre-tax basis, reduce current income taxes and form personal capital on a tax efficient basis for education and retirement. The impact to the corporate compensation expense will be minimal because the corporation will be exchanging a salary expense for a deferred compensation expense.
The deferred compensation plan becomes a retention tool when the corporation makes a contribution to the plan. The amount of the contribution is generally determined on an annual basis as is the allocation to each executive's account. A vesting schedule is then established for the corporate contribution. The corporation can use a uniform vesting schedule for all plan participants or specific vesting schedules to accommodate specific retention objectives. The impact to corporate income can be gradual as deferred compensation expense is not charged until vesting begins (SFAS 106 which amended APB 12).
When the plan is used as a retention tool each subsequent year's corporate contribution often begins a new vesting schedule (class year vesting) assuring that executives always have plan forfeiture at risk. This approach also softens the corporate expense. Additionally, since forfeitures can be expected as executives leave prior to vesting, subsequent years' corporate contributions can be offset by forfeited amounts. For example, if the 2010 corporate contribution is $2 million and executives terminate and forfeit $400,000, the 2011 corporate deposit will be $1.6 million and the $400,000 will be reallocated to remaining executives.
The executive attraction plan component can also include signing bonuses. However, instead of paying them in cash the bonus is paid into the deferred compensation plan and is subject to a vesting schedule that meets the corporate objective.
With income taxes expected to rise and the competition for executive talent expected to increase, the timely implementation of a deferred compensation plan could be of great benefit to the corporation and the executive.
This material is intended for informational purposes only and is not intended to replace the advice of a qualified tax advisor.
Investments in securities involve risks, including the possible loss of principal. When redeemed, shares may be worth more or less than their original value.
Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. American Benefit Corporation is independently owned and operated.